Ontario – pleading to action insufficient to qualify as waiver to request stay

In Khomovych v. Bomar 2 Inc. o/a Colony Park Homes, 2019 ONSC 3982, Madam Justice Mary E. Vallee stayed the action despite Defendant having pleaded to it and Plaintiff’s request for an adjournment so that it could present its motion for summary judgment under section 7(2)5 of Ontario’s Arbitration Act, 1991, SO 1991, c 17.  Vallee J. determined that the parties were bound to undertake arbitration imposed by legislation applicable to new home warranties.

Plaintiffs and Defendant signed an agreement of purchase and sale of a residential home (“Agreement”).  The agreement attached certain “Tarion forms” as schedules including one which stated that “termination disputes shall be submitted to arbitration”.  Section 17(4) of the Ontario New Home Warranties Plan Act, RSO 1990, c O.31 stipulates that :

17(4) Every agreement between a vendor and prospective owner shall be deemed to contain a written agreement to submit present or future differences to arbitration, subject to appeal to the Divisional Court, and the Arbitration Act, 1991 applies.

Plaintiffs refused to close the transaction because their inspection of the house the day prior to the closing led them to conclude that the house was not sufficiently complete for habitation and no occupancy certificate had been issued by the city. 

Rather than arbitrate their dispute, Plaintiffs filed an action in Ontario Superior Court claiming a declaration that Defendant had breached its obligations of the Agreement and damages.  The claims were based on, among other things, Plaintiffs’ allegation that Defendant was negligent in its performance of the construction work and failed to complete it. Vallee J. noted that Plaintiffs made claims in both contract and tort.

Defendant applied for a stay of the litigation.  Plaintiffs countered with a motion to adjourn so that they could bring a motion for summary judgment.

Vallee J. identified three (3) issues for her to determine:

1. Is Defendant precluded from bringing its motion for a stay because it pleaded to the action;

2. Did Defendant delay in bringing its motion to such an extent that it falls within a statutory exception; and,

3. Is this matter proper for summary judgment

Vallee J. noted that the issues raised the application of sections 7(1) and 7(2) of the Arbitration Act.  

Vallee J. referred to Dewshaf Investments Inc. v. Buckingham Hospitality, 2005 CanLII 63770 (ON SC), O.J. No. 6190, para. 7 as source when stating “[t]he discretionary jurisdiction of the court to decide an issue that the parties have agreed to submit to arbitration is to be exercised sparingly.”  That source and the context in which Vallee J. mentioned jurisdiction to decide an issue both involve the summary judgment exception provided at section 7(2)5 of the Arbitration Act.

7(1) If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.  1991, c. 17, s. 7 (1).

7(2) However, the court may refuse to stay the proceeding in any of the following cases:

1. A party entered into the arbitration agreement while under a legal incapacity.

2. The arbitration agreement is invalid.

3. The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.

4. The motion was brought with undue delay.

5. The matter is a proper one for default or summary judgment.

Dewshaf Investments Inc. v. Buckingham Hospitality referred to 407 ETR Concession Co. v. Ontario (Minister of Transportation), 2004 CanLII 35031 (ON SC) as its touch point for the policy for summary judgment motions being resolved “in the most just and expeditious manner”.  See also MDG Kingston Inc. v. MDG Computers Canada Inc., 2008 ONCA 656.

Referring to Carillion Construction Inc. v. Imara (Wynford Drive) Limited, 2015 ONSC 3658, Vallee J. reiterated the four (4) step analysis to determine whether to stay an action.  That earlier case framed the analysis as follows:

[40] The Court of Appeal in Mantini v Smith Lyons LLP[2003 CanLII 20875 (ON CA)] applied a three-step analysis to determine whether an action ought to be stayed under section 7 of the Arbitration Act, 1991. First, the court interpreted the contractual arbitration clause in the context of the agreement as a whole. Second, the court analyzed the claims to determine whether they fell within the parameters of the types of disputes that could be arbitrated. Third, the court assessed whether any of the enumerated exceptions applied. I would add to this analysis a fourth step: consideration of the discretionary exceptions found in the Arbitration Act, 1991 at sections 6§3 and 7(5), which the court in Mantini did not need to consider once it had determined that all of the issues in dispute in the court proceedings fell within the arbitration clause.

Despite the addition of the tort claims, Vallee J. held that the dispute fell within the scope of the arbitration agreement.

Vallee J. then considered the estoppel argument. Plaintiffs alleged that Defendant’s participation in the litigation met the three (3) essential elements of estoppel, referring to Williams Estate v. Paul Revere Life Insurance, 1997 CanLII 1418 (ON CA).  Vallee J. summarized those elements as follows:

1) a representation or conduct amounting to a representation intended to induce a course of action or conduct on the part of the person to whom the representation is made; (2) an act or omission resulting from the representation, whether actual or by conduct, by the person to whom the representation is made; and (3) detriment to such person as a consequence of the act or omission.

It is not clear how this argument was analysed other than, having summarized it, Vallee J. appeared to dismiss by listing the following to counter element no. 1.

The plaintiffs state that the defendant’s participation in litigation is a representation.  The plaintiffs had to defend the counterclaim.  The defendant never said that it would provide a waiver for a defence to the counterclaim.

For their argument on undue delay, Plaintiffs relied on Bouchan v. Slipacoff, 2009 CanLII 728 (ON SC).  That decision concerned a matrix of facts sufficiently distinct from those before Vallee J.  In Bouchan v. Slipacoff, the court noted:

[34] A number of significant steps have been taken in this matter, more particularly the issuance of the statement of defence and counterclaim. Resort to the arbitration clause was not referenced in any of the pleadings. It was first raised by the defendants when the plaintiff sought to schedule examinations for discovery. The defendants in this action waived their right to insist that arbitration apply when they took steps within the action.

Vallee J. distinguished Bouchan v. Slipacoff.  She held that there was no significant delay in the case before her, that Defendant raised the issue of arbitration in its Statement of Defence and that only the pleadings had been exchanged.

Vallee J. then considered whether the matter was a proper one for summary judgment. 

First, she expressly disagreed that Plaintiffs “had no choice” but to initiate litigation.  “In the agreement of purchase and sale, they agreed to submit to arbitration disputes with respect to termination of the agreement for the failure to complete the house.

Second, based on the allegations made by Plaintiffs, significant facts remained in dispute.  Because not all the materials for summary judgment were before her, she could not determine if the matter was suitable. 

As a result, Vallee J. declined to exercise the exception in section 7(2) and stayed the action.